As the number of people shopping online continues to rise year by year, so does the demand for convenient and reliable online payment gateways.

The online payment gateway market value is projected to reach $191.1 billion by 2028

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When the pandemic hit, home quarantine and people's limited movement only fueled the rise in digital transactions and online payment gateways.

When restrictions were put in place, people turned to online options to get their hands on the things they needed - from medication to groceries and anything in between.

For marketplace operators, a digital payment processor is essential to doing business.

Selling items in an online marketplace like Amazon or an eCommerce website needs a fast and easy way for customers to pay - and this is where Paypal comes in.

Paypal is one of the most trusted and famous online payment methods available today.

This blog post will explain why using Paypal as an online marketplace payment gateway is an excellent idea for many businesses.

What is Paypal and How Did it Start?

Founded in 1998 as Confinity, Paypal was the brainchild of Max Levchin and Peter Theil. It started as security software for mobile devices but never took off.

In 1999, Paypal started as a platform that does money transfers.

eBay acquired Paypal in 2002, which fueled the payment gateway's popularity across the globe as more merchants began using it.

Since then, the company has grown to $97.19 billion in 2022.

Benefits Of Using Paypal In Online Marketplaces

As one of the most popular and commonly used payment gateways, there are many benefits to using Paypal for online marketplaces.

They are the following:

Easy to integrate and use

One of the benefits of using Paypal as a payment gateway is that it is easy to integrate and use.

This makes it a good solution for new and small businesses that may not have the resources to set up a more complex payment gateway.

Paypal offers several integration options depending on the business type, the country in which the business is based, and other factors.

The company also provides user-friendly online tools to walk marketplace operators through the whole process.

Moreover, Paypal offers seller tools that make it easier to manage online sales.

These tools include real-time reporting, account management, and fraud protection tools.

That makes it easier to stay on top of your sales, increase your sales and protect yourself against fraudulent buyers.

Supports multiple payment types

One of the most important things to consider when choosing an online marketplace payment gateway is the payment types it supports.

Paypal offers support for several payment types, including credit cards, debit cards, and gift cards. There are also additional options available for mobile payments.

This feature is vital for worldwide marketplaces that sell their products or services.

The company also offers seller tools that help sellers accept different payment types.

These tools let you set up multiple payment methods and payment preferences.

This lets the online marketplace accommodate different types of customers and payment types and improves a store's conversion rates.

Popularity among online shoppers

One of the most significant advantages of Paypal is that it is incredibly popular among online shoppers.

Very few people don't already have a Paypal account, and almost everyone who shops online has used the service at least once.

This payment gateway is available in over 200 countries and supports 25 currencies.

Payment is also partnered with several online marketplaces, including Bonanza, Grailed, Swappa, Walmart, Google, and Wish.

Customers are already familiar with the payment type and are more likely to feel comfortable using it.

That can significantly increase sales, as shoppers are less likely to abandon their carts if they are already logged into their Paypal account.

Fraud protection for sellers

One of the biggest challenges with online sales is combatting fraud.

In 2021, Citizens Advice, a consumer financial assistance network in the United Kingdom, found a 160% rise in online marketplace scams.

There are many different types of online fraud, including fraudulent payments.

Paypal offers several fraud tools and protection for sellers.

The company's risk and fraud management tools help online marketplace operators monitor and manage online sales and identify potentially fraudulent transactions before they happen.

Sellers can set fraud detection settings at different levels to protect themselves against various types of fraud.

For example, specific fraud settings can be set up for new customers. This helps protect against fraudulent transactions from new buyers who may not have enough information in their accounts to pass the fraud check.

Another way marketplace owners can protect themselves from fraud is by setting up risk rules and thresholds. This helps marketplace owners identify and prevent fraudulent transactions before they happen, which is essential for sellers who sell high-value items.

Strong protection for buyers

Aside from the fraud protection, it offers to sellers and marketplace operators, Paypal also has a feature called Paypal Buyer Protection.

In Buyer Protection, eligible customers are given a reimbursement for the total amount of their purchase plus shipping costs if their items never showed up or were delivered but damaged or weren't as described in the listing.

There are certain limitations to Buyer Protection.

These are intangible items like services, real estate, motorized vehicles of any kind, custom-made items, travel tickets, industrial machinery, gift cards, anything bought in person, or items that violate PayPal's or eBay's policies.

Moreover, transactions handled by Paypal are monitored 24/7 for fraud risks. This is useful for marketplaces that offer products to buyers around the globe.

Challenges of Using Paypal in Online Marketplaces

On the other side of the fence, there are several challenges to using Paypal as a payment gateway.

Seller Protection doesn't cover services and digital products.

As mentioned above, Paypal Buyer Protection does not cover intangible items, including services and digital goods.

With such restrictions, it can be difficult for online marketplaces and eCommerce websites that offer digital items or services to utilize this payment gateway in their platforms.

Paypal fees can be high

One significant consideration for using Paypal as a payment gateway in an online marketplace is the fee associated with transactions and withdrawals.

When withdrawing money from Paypal to a bank account, users have the option to go with standard or instant transfers.

Standard transfers are free but could take 1-3 days to receive. Instant transfers can happen within minutes, but Paypal charges 1.75% of the withdrawal amount for a fee of $0.25 - $25.

Moreover, for online marketplaces that have customers worldwide and thus accept different currencies, Paypal has a conversion service charge of 4.5% when converting foreign currency to a local one.

The company charges a 2.9% plus a $0.30 fixed transaction fee for transactions paid with Paypal credit, debit, or credit cards.

Domestic transactions paid with a Paypal balance, bank account, or Amex Send Account are free, while international ones have a 5% (between $0.99 and $4.99) fee.

Violations of terms and conditions could lead to account suspension and frozen funds.

Paypal is a convenient way to pay for goods and services. However, being a huge payment gateway, the company can be strict with its rules.

Known for being somewhat aggressive with account restrictions, using Paypal could potentially turn off users looking to sell in an online marketplace.

Account limitations happen for various reasons, including unusual activity in the account, failure to adhere to Paypal's terms, or when the account exceeds dispute thresholds.

This results in the account being restricted from withdrawing, sending, and receiving money, which could last up to 180 days.

While these rules are put in place to protect buyers and sellers, it can be inconvenient to have funds frozen and may put off marketplace operators from using the platform.

Customer service needs improvement.

One of the main challenges associated with using Paypal is with regard to their customer service.

The payment gateway received a 1.3 rating on Trustpilot, with reviewers citing customer service putting them on hold for a long time and responding with the usual copy-pasted emails to their concerns.

Paypal also received a 3.8 rating from ConsumerAffairs, with the same issues with customer service.

While their customer service leaves much to be desired, Paypal's API, interface, website, and workflows do work seamlessly. While this limits the need to contact customer service, it could be challenging to reach them once the need arises.

Choosing the right payment gateway for your online marketplace is an important decision. An e-commerce payment gateway is a gateway between your customers and their money. The electronic system allows customers to log in to their accounts and transfer funds to you.

There are so many options out there, so it's vital to consider the needs and expectations of users and the business when selecting a gateway.

A gateway payment system that is secure, trustworthy, easy to use, and something which customers are familiar with is something worth putting the research on.

Paypal is ideal for many online businesses because it meets those requirements.



While there are challenges to using Paypal as the payment gateway to an online marketplace, it is still one of the best choices available.

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Credits : Yclas